# Break even test - Oldfield Economics ```Break Even Test
This test consists of 10 questions designed to
test your understanding of break even
analysis.
along with explanations and solutions.
You will need a calculator to complete this
test.
Question 1.
Contribution can be found by using which of
the following
a. Revenue per unit - variable costs per unit
b. Fixed costs - variable costs
c. Variable costs per unit - revenue per unit
Contribution measures the gross profit
of each unit sold.Try again.
Contribution measures the gross profit of
each unit sold.Try again.
Question 2.
A firm has fixed costs of &pound;1,200 , and
contribution per unit of 60p, what is breakeven level of output ?
A. 1,500 units
B. &pound;2,000
C. 2,000 units
To find Break even level of output the formula is
fixed costs divided by contribution per unit.
.
Try Again
To find Break even level of output the formula
is
fixed costs divided by contribution per unit.
And remember we are looking for an output
quantity, not a monetary value
Try Again
Correct
Question 3.
What is a firms break even point if its fixed
costs are &pound;1,300 per week, revenue &pound;4.00
per unit and variable costs &pound;2.50 per unit??
A. 325 units per week
B. 867 units per week
C. 520 units per week
To find Break even level of output the formula
is
fixed costs divided by contribution per unit.
To find contribution take VC per unit from
Revenue per unit
Try Again
Correct
To find Break even level of output the formula is
fixed costs divided by contribution per unit.
To find contribution take VC per unit from
Revenue per unit
Try Again
Question 4.
A firm has an output level of 870 units per
week, and a break even output level of 650
units per week. What is the firms margin of
safety?
A. nil units per week
B. 1520 units per week
C. 220 units per week
Margin of safety equals
Output - break even output
Margin of safety equals
Output - break even output
Correct
Question 5.
Which of the following defines fixed costs?
A. Costs that vary directly in proportion to
output.
B. Costs that remain the same, in the short run
no matter what the output level.
Fixed costs always remain the same
in the short run.
Correct
Question 6.
What will be a firms losses given the
following situation. Output 1600 units,
contribution &pound;2.50 unit, break even point
2000 units
A. &pound;1000 loss
B. &pound;4000 loss
C. &pound;5000 loss
Correct
To find losses
Take output from break even output
contribution per unit.
To find losses
Take output from break even output
contribution per unit.
Question 7.
Which of the following holds true in the long
run?
A. Variable costs always fall.
B. Fixed costs become variable.
Diseconomies of scale can cause
variable costs per unit to rise.
Correct. The long run is defined as
when fixed costs become variable
Question 8.
Given the following what will the firms
profits per year be? Fixed costs &pound;6000 per
week, sales 4,000 per week, revenue per
unit &pound;10, variable costs per unit &pound;7.50.
A. &pound;4,000
B. &pound;208,000
C. &pound;32,000
To find profit.
First calculate contribution per unit
Then find break even point
Then find margin of safety
Finally multiply margin of safety by
contribution.
Correct. To find profit you.
First calculated contribution per
unit
Then found break even point
Then found margin of safety
and finally multiplied margin of
safety by contribution
To find profit.
First calculate contribution per unit
Then find break even point
Then find margin of safety
Finally multiply margin of safety by
contribution
Question 9.
Which of the following is a weakness with
break even analysis?
B. It does not allow for costs of production
rising with output
C. It does not allow for economies of scale
Overheads are part of fixed costs
Variable costs allow for this
Correct To allow for economies of
scale the fixed costs line should be
a convex curve.
Question 10.
A firm increases sales from, 1,200 units per
month to 1,700 units per month. Variable
costs are &pound;4.00 per unit, fixed costs are
&pound;3,000 per month and revenue is &pound;8.00 per
unit. How much do profits increase by?
A. &pound;4,000 per month
B. &pound;6,800 per month
C. &pound;2,000 per month
Wrong. Calculate
contribution, and
multiply by the increase
in sales.
For a full break down of
figures try calculating
break even point.
Wrong. Calculate
contribution, and
multiply by the increase
in sales.
For a full break down of
figures try calculating
break even point.
Correct. You calculated contribution,
and multiplied by the increase in sales.
You have now completed the test.
For further
more detailed revision please use the case studies on
the ALoA web site
www.aloa.co.uk
```